Back in February, we announced that we were changing the name of our company from 37signals to Basecamp, and would be concentrating on just one product--Basecamp. This meant finding new homes for our other properties. We decided to start the process with Highrise, our customer relationship management tool, because it was our second-most popular product and it would command the highest price. On its own, Highrise generates several million dollars in annual profits, so we figured it would be attractive to someone.

Immediately after we made the announcement, a flood of emails came in from companies and investors interested in kicking the tires. I expected some interest, but never so much so soon. We narrowed the field to about a dozen companies that we felt would provide a great home for our customers and fertile soil to build Highrise to its full potential. The fit was critical--we rejected a few deep-pocketed buyers because their plans were to shutter Highrise and roll its customers into their existing product. That wasn't an outcome we could live with.

The finalists were notified, we shared the prospectus, and they had a few weeks to submit a bid package and long-term plan to improve Highrise. I can't say who was involved in the bidding, but it was some of the usual suspects (big software companies) and some unusual ones (smaller software companies and private equity firms). A healthy mix, for sure.

But in the end, we couldn't make a deal. The sticking point wasn't the valuation or price. It was the fact that Highrise didn't come with a team. Everyone who worked on Highrise would be staying at Basecamp. All the serious buyers wanted the team, too. No deal. We weren't downsizing; we were just focusing everybody on Basecamp.

This meant selling Highrise was off the table, so we turned to doing a spinoff--and we needed a leader for the new company. At a Chicago networking event back in 2007, I met a smart programmer named Nate Kontny who said he'd been inspired by the work we were doing at 37signals. Nate emailed me periodically in the years that followed. Occasionally I'd get a note mentioning a bug in one of our products, or an idea to better optimize a page. He was trying to establish a relationship, but he always did it by offering something useful, never by just kissing up or with any expectation of a payback.

The right opportunity for Nate to join 37signals never came along, but I did get to know him better when I agreed to be an adviser for a product he built called Draft, which shared a design and user-experience sensibility with our company. I learned that Nate is a great programmer, a great product thinker, a great leader, and a hell of a nice--and driven--guy.

Although a couple of other names came to mind, I knew as soon as we started thinking about a spinoff that Nate was the perfect fit for Highrise. Now, a few months later, it is a separate company (legally a subsidiary of Basecamp) and he is its CEO. During the transition period, Highrise will lease some infrastructure from Basecamp, but ultimately it will be completely self-sufficient. Plus, because Highrise is profitable, it has required no outside money to get off the ground.

One of my biggest worries in trying to sell Highrise was that the principles that make it special--its simplicity, its ease of use--would eventually be lost. We heard the same fear from customers, who were already frustrated that we had let the product stagnate as we spread ourselves too thin. When we announced the spinoff and Nate's leadership, the reaction was entirely positive--people can't wait to see Highrise continue in its original spirit. I can't either. Nate will have to hire a completely new team to run the company, but the beauty of having him in charge is that I know the core values will remain constant. It just fits this way. 

From the November 2014 issue of Inc. magazine